A project may be divided into individual tasks, examples of which are work breakdown structures (“WBS”). Each task may be assigned a value that the task is worth. The value may be monetary or hourly. That is, each task may be assigned a particular dollar value that accrues upon its completion. Likewise, each task may be valued in terms of the number of hour required to complete the task.
The term “earned value” refers to the value associated with tasks following completion or partial completion. For example, a project may include five tasks, each of which is valued at 10 hours and $100. Completing two of these tasks will result in earned value of 20 hours, or $200.
Earned value is determined based on budgeted hours and cost for completion, not actual hours and cost. In the above example, it actually may have taken 50 hours to complete two tasks. However, the 50 hours it took to complete the two tasks is not taken into account when determining earned value. In this example, the earned value remains 20 hours for completing the two tasks.
Customers often require periodic reporting of earned value in order to gauge progress through a project. In the aerospace and defense industry in particular, the United States (“U.S.”) government often requires earned value reporting, and has stringent requirements that firms must comply with when reporting earned value.